Q2 2024 Brookfield Infrastructure Partners LP Earnings Call
Good day and thank you for standing by. Welcome to the Brookfield Infrastructure Partners second quarter 2024 results conference call.
Unknown Executive: for Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 once again. I would now like to hand the conference over to David Krant, Chief Financial Officer. Please go ahead. Thank you.
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Unknown Executive: Please be advised that today's conference is being recorded.
Speaker Change: Please be advised that today's conference is being recorded.
Unknown Executive: I would now like to hand the conference over to David Krant, Chief Financial Officer. Please go ahead.
I would now like to hand, the conference over to David Grant Chief Financial Officer. Please go ahead.
David Krant: Thank you, Liz, and good morning, everyone. Welcome to Brookfield Infrastructure Partners' second quarter 2024 earnings conference call. I'll begin the call today with a summary of our second quarter 2024 financial and operating results, followed by a discussion of our recent capital markets activities. These statements are subject to known and unknown risks, and future results may differ materially.
David Krant: Thank you, Liz, and good morning, everyone. Welcome to Brookfield Infrastructure Partners, second quarter, 2024, earnings conference call. I introduce my name is David Krant, and I'm the Chief Financial Officer of Brookfield Infrastructure. I'm joined today by our Chief Executive Officer, Sam Pollock, and our Chief Operating Officer, Ben Vaughan. I'll begin the call today with the summary of our second quarter, 2024, financial operating results, followed by a discussion of our recent capital markets activities.
David Grant: Thank you Liz and good morning, everyone welcome to Brookfield infrastructure Partners' second quarter 2024 earnings Conference call.
David Krant: I'll then turn the call over to Sam, who will provide an update on our strategic initiatives before concluding with an outlook for the business. At this time, I would like to remind you that in our remarks today, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially. For further information, unknown and known risk factors, I would encourage you to review our annual report on Form 20-F, which is available on our website. During the second quarter, Brookfield Infrastructure generates strong financial and operating results, while also advancing our strategic initiatives.
David Krant: For the three-month ended June 30, 2024, we generated funds from operations, or FFO, of $608 million, an increase of 10% over the prior year period. The current quarter benefited from organic growth that was at the midpoint of our target range, as well as recent acquisitions that significantly contributed to results. This included a continuation of the strong performance at our global intermodal logistic operations, higher contributions from our increased stake in a Brazilian integrated rail and logistics provider, and three data center platform investments. These positive drivers were partially offset by the impact of capital recycling, higher interest costs, and the impact of foreign exchange.
David Krant: For the three months ended June 30, 2024, we generated funds from operations, or SFO, of $608 million, an increase of 10% over the prior year. The current quarter benefited from organic growth that was at the midpoint of our target range, as well as recent acquisitions that significantly contributed to results. These positive drivers were partially offset by the impact of capital recycling, higher interest costs, and the impact of foreign exchange.
Speaker Change: To be offset by the impact of capital recycling higher interest costs and the impact of foreign exchange.
David Krant: Looking at a result by offer and assignment, starting with the utilities, we generated FFO of $180 million, compared to $224 million in the same period last year. The decline is due to capital recycling activity, including the sale of our interest in an Australian regulated utility business, and additional interest costs associated with the financing completed at our Brazilian regulated gas transmission business during the first quarter. After removing these impacts, the base business grew organically as a result of inflation indexation, and the contribution associated with $450 million of capital commissioned into the rate base over the last 12 months.
Speaker Change: Looking at our results by operating segment, starting with the utilities, we generated <unk> of $180 million compared to $224 million in the same period last year.
Speaker Change: The decline is due to capital recycling activity, including the sale of our interest in an Australian regulated utility business and additional interest costs associated with the financing completed at our Brazilian regulated gas transmission business during the first quarter.
David Krant: After removing these impacts, the base business grew organically as a result of inflation indexation and the contribution associated with $450 million of capital commissioned into the rate base over the last 12 months. Moving to our transport segment, FFO was $319 million, representing a 60% increase over the same period in the prior year. The increase is primarily attributable to our acquisition of a global intermodal logistics operation, which continues to perform ahead of expectations, as well as the incremental stake in our Brazilian integrated rail and logistics operation that delivered strong performance this quarter, a tariff increase by more than 15 percent. The unprecedented growth in North American power demand has created further opportunities for our critical midstream actors.
Speaker Change: After removing these impacts the base business grew organically as a result of inflation indexation and the contribution associated with $450 million of capital commissioned into the rate base over the last 12 months.
David Krant: Moving to our transport segment, FFO was $319 million, representing a 60% increase over the same period in the prior year. The increase is primarily attributable to our acquisition of a global intermodal logistic operation, which continues to perform ahead of expectations, as well as the incremental stake in our Brazilian integrated rail and logistic operation, that delivered strong performances quarter, as tariffs increased by more than 15%. The reigning businesses also perform well, achieving organic growth of 9%, which is primarily driven by inflationary tariff increases across the portfolio. Our midstream segment generated an FFO of $143 million, which is ahead of the prior year after excluding the impact of capital recycling.
Speaker Change: Moving to our transport segment.
Speaker Change: <unk> was $319 million, representing a 60% increase over the same period in the prior year.
David Krant: Strong demand and customer activity levels continue to benefit results, most prevalent at our North American gas storage business where we continue to add contractoration at higher rates compared to prior years. Non-president growth in North American power demand has created further opportunities for our critical midstream asset. During the quarter, our businesses capitalize on the favorable market environment by securing several accretive commercial agreements and both on capital projects to meet growing customer demand. Lastly, FFO from our data segment was $78 million, representing an 8% increase over the same period last year. This result reflects the contribution from recently completed acquisitions, including the purchase of 40 retail co-location sites and two marquee hyperscale data center platforms. Across our global data center platform overall, we continue to see strong momentum in leasing activity on the tail of artificial intelligence investment and our customers' need for more processing and storage capacity.
David Krant: Lastly, FFO from our data segment was $78 million, representing an 8% increase over the same period last year. Moving on from our financial and operating performance, As our businesses grow their underlying cash flows, we can raise additional debt while preserving the existing capital structure. A great example of where we were able to achieve a term extension at an attractive price was at our Western Canadian Natural Gas Gathering and Processing operation. These activities reduce our cost of financing by over $7 million annually, net to business.
David Krant: Moving on from our financial and operating performance, I would now like to highlight some of our recent capital market activity. In addition to replenishing our investment pipeline and progressing our asset-celled plans, which Sam will speak to soon, our primary focus is quarter with capitalizing on very attractive debt capital markets to further de-risk our asset level balance sheets. Within our businesses, we completed approximately $5 billion of non-recourse financing during the quarter, and our activity can be broadly bucketed into three categories. The first category is right sizing capital structures. As our businesses grow their underlying cash flows, we can raise additional debt while preserving the existing capital structure.
David Krant: In the last nine months, we have generated approximately $1.4 billion of proceeds, of which $1.1 billion reflects capital recycling activity. This is in specific instances where we are within 24 months of an expected sale, and the new capital structure allows us to reduce the equity required by a future buyer and pull forward future sale proceeds. The second category is maturity extensions. We have proactively refinanced $3.4 billion in maturity occurring over the next several years. Across these transactions, the combined average rate increase was only 50 basis points. The benefit of pushing out maturity is greatly outweighed the modest increase in financing costs, which is also more than offset by the inflationary revenue increases we've experienced over the last several years.
Speaker Change: We are.
Speaker Change: Actively refinanced $3 4 billion in maturities occurring over the next several years across these transactions. The combined average rate increase was only 50 basis points the benefit of pushing out maturities greatly outweighs the modest increase in financing cost, which is also more than offset by the inflationary revenue increases we've experienced over the last several years.
David Krant: A great example of where we were able to achieve a term extension and a tract of price was at our Western Canadian natural gas gathering and processing operation. In July, we completed a $720 million dollar eight-year bond issuance, with proceeds used to repay a 2026 maturity. The newly-issue bonds allowed us to fully de-risk the maturity profile and extend the average duration of debt outstanding by two years. In addition, the new bonds were priced very competitively at a coupon in line with the debt being refinanced. The third and final category is opportunistic reprisings. We took advantage of the strong spread environment and completed approximately $1 billion of loan reprisings across three of our businesses during the second quarter.
Speaker Change: <unk>.
Speaker Change: A great example of where we were able to achieve a term extension and an attractive price was at our western Canadian natural gas gathering and processing operation and.
Speaker Change: In July we completed a $720 million eight year bond issuance with the proceeds used to repay a 2026 maturity.
Speaker Change: The newly issued bonds allowed us to fully de risked the maturity profile and extend the average duration of debt outstanding by two years and.
Speaker Change: In addition, the new bonds were priced at a very competitive very competitively at a coupon in line with the debt being refinanced.
David Krant: These activities reduced our cost of financing by over $7 million annually net to Bit. These repricing transactions are a unique feature of a floating rate loan market and allow the issuer to reduce the credit spread of a previously issued loan while keeping the existing capital structure in place. Our balance sheet position was strong to begin the year and has been further bolstered by this activity. Over the next 12 months, only 1% of our asset level debt is maturing, and we have no corporate maturities until 2027. In addition, we maintain significant corporate liquidity of $1.9 billion and remain well positioned to support growth initiatives.
David Krant: These repricing transactions are a unique feature of the floating-rate loan market and allow the issuer to reduce the credit spread of a previously-issued loan while keeping the existing capital structure in place. Our balance sheet position was strong to begin the year and has been further bolstered by this activity. Over the next 12 months, only 1% of our asset-level debt is maturing, and we have no corporate maturities until 2027.
David Krant: That concludes my remarks for this morning.
Sam Pollock: I'll now turn the call over to Sam. Thank you, David, and good morning, everyone. For my remarks today, I'm going to provide an update on our strategic initiatives, and then I'll conclude with a business outlook. In relation to our strategic initiatives, both public and private infrastructure deal flow has been a low slower start the year. However, one of the benefits of our business is that we have many avenues to deploy capital. In periods where large scale M&A activities lower, we focus heavily on tucking and organic growth opportunities embedded in our portfolio. In 2024, loan we secure or completed 7th follow-on acquisitions comprising nearly $4 billion of enterprise value.
David Krant: For my remarks today, I'm going to provide an update on our strategic initiatives, and then I'll conclude with a business outlook. In relation to our strategic initiatives, both public and private infrastructure deal flow has been a little slower to start the year. Most significantly, in total, these projects represent almost $800 million in capital.
Sam Pollock: Most significantly, we were able to complete the acquisition of 40 data center sites due to a previous owner's mismanaging their capital structure and ending up in bankruptcy. The quarter also included the fall on acquisition of a 10% stake in our Brazilian integrated rail and report statistics business, and early in the year we signed the both on acquisition of a tower portfolio in India, which remains on track to close early in the fourth quarter or sooner. We also maintain a large project backlog, which is increased by 15% from this time last year to approximately $7.7 billion.
Speaker Change: Most significantly we were able to complete the acquisition of 40 data centers sites due to a previous owners mismanaging their capital structure and ending up in bankruptcy.
Speaker Change: The quarter also include the follow on acquisition of a 10% stake in our Brazilian integrated rail ports logistic business and.
Speaker Change: And earlier in the year, we signed the bolt on acquisition of a tower portfolio in India, which remains on track to close early in the fourth quarter or sooner.
Speaker Change: We also maintain a large project backlog, which has increased by 15% from this time last year to approximately $77 7 billion.
Sam Pollock: In the mainstream sector, we are supporting increased producer activity through contracted facility and pipeline expansions. In total, these projects represent almost $800 million in capital, which will generate over $140 million in EBITDA and will fully contribute to results over the next two years. In our data segment, we are commercializing our existing land bank and investing over $1 billion in near-term growth capital to build data centers for our hyper-scale customers. In addition, we are supporting a growth ambition through strategic land acquisitions in Athens, Chicago, Frankfurt, Milan, and Phoenix. With respect to new investments, market conditions are trending positively.
Speaker Change: In the midstream sector, we're supporting increased producer activity through contracted facility and pipeline expansions.
Speaker Change: In total these projects represent almost $800 million in capital, which will generate over $140 million in EBITDA and will fully contribute to results over the next two years.
David Krant: In addition, we are supporting their growth ambitions through strategic land acquisitions in Athens, Chicago, Frankfurt, Milan, and Phoenix. With respect to new investments, As a result, we expect the back half of 2024 to be active for M&A. Additionally, large industry tailwinds such as AI are creating opportunities for well-capitalized businesses like ours. Furthermore, recent market developments have provided an encouraging backdrop. Equity indices have reached historic highs, as I previously mentioned. Several years ago, we coined the term 3Ds to describe these themes.
Sam Pollock: As a result, we expect a back half of 2024 to be active for M&A. Much of this is driven by the improved interest rate environment as the Bank of Canada and the European Central Bank are leading the way with the loosening of their monetary policies. Additionally, the large industry tailwinds such as AI are creating opportunities for well-capitalized businesses like ours, where we are an obvious partner of choice for technology companies that are seeking alternative access to private capital. Our novel transaction with Intel several years ago is providing the blueprint for similar large-scale opportunities, which are gaining momentum.
Sam Pollock: In relation to capital recycling, we are extremely active and have three advanced processes in a number of areas. We have six further asset sales progressing that are expected to generate almost 2.5 billion in proceeds when combined with our three advanced processes. This quarter, we monetize assets totaling approximately $210 million, bringing our total capital recycling for the year to about $1.4 billion. In terms of our business outlook, recent market developments have provided an encouraging backdrop. Equally, indices have reached historic highs. As I previously mentioned, G7 nations have initiated monetary easing measures that should reinvigorate large-scale mining activity.
Speaker Change: <unk> be great large scale M&A activity.
Sam Pollock: Our strong alignment with the global mega trends offers an exciting and under-appreciated growth opportunity for our business. Several years ago, we coined the term 3D's, which namely, disillization, decarbonization, and decalobization to describe these themes. While our business spans all three, we are particularly significantly levered towards digitization and decarbonization. We are in active discussions with several blue chip technology companies that are interested in leveraging virtual infrastructure's market-leading scale and expertise. The tailwinds created from AI adoption supports exponential growth in our global data center platforms that serve as a large type of scalers, as well as our electric utilities and natural gas infrastructure.
Speaker Change: Our strong alignment with the global Mega trends offers an exciting and underappreciated growth opportunity for our business.
Speaker Change: Several years ago, we coined the term the three DS.
Speaker Change: Namely digitalization decarbonization and de globalization.
Speaker Change: To describe these themes.
David Krant: Well, our business spans all three, and we are particularly significantly levered towards digitalization and decarbonization. We are in active discussions with several blue-chip technology companies that are interested in leveraging Brookfield Infrastructure's market-leading scale and expertise. The tailwinds created from AI adoption support exponential growth in our global data center platforms that service the large hyperscalers as well as our electric utilities and natural gas infrastructure. Although we've been very active pursuing growth through bolt-on acquisitions and organic capital projects during the past few quarters, we are experiencing significant improvement in our business to achieve our 2024 capital recycling and deployment target.
Speaker Change: While our business spans all three.
Speaker Change: We are particularly significantly levered towards digitalization and de carbonization.
Speaker Change: We are in active discussions with several blue chip technology companies that are interested in leveraging Brookfield infrastructure's market, leading scale and expertise.
Speaker Change: The tailwind is created from AI adoption supports exponential growth in our global data center platforms that service the large hyperscale as.
Speaker Change: As well as our electric utilities and natural gas infrastructure.
Sam Pollock: Although we've been very active pursuing growth through both on acquisitions and organic capital projects during the past few quarters, we are experiencing significant improvement in our business to achieve our 2024 capital recycling and deployment targets. It's cooking adherence to our financial guard rules has resulted in a strong balance sheet and liquidity position, with tremendous access to large-scale capital. This combined our connectivity into global transaction activity, and our ability to move quickly should continue to create attractive investment opportunities for our business.
Speaker Change: Although we've been very active pursuing growth through bolt on acquisitions and organic capital projects during the past few quarters.
Sam Pollock: This concludes my remarks, and I'll pass it over to Liz for some Q&A.
Unknown Executive: As a reminder, if you'd like to ask a question at this time, please press star-1-1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please stand by while we compile the Q&A roster.
Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question will come from the line of Cherilyn Radbourne, with TD Cowan.
Cherilyn Radbourne: Our first question will come from a line of Sheryl and Radborne with Judy Cowan. Thanks very much, and good morning. I wanted to pick up on the comments in the letter regarding capital deployment opportunities tied to AI across data, utility, and midstream.
Cherilyn Radbourne: I think the opportunities in data are fairly self-explanatory, but maybe you could spend some time to add color on where you're seeing leverage in the utilities and natural gas vectors.
Sam Pollock: Okay, thanks, Cherilyn. Yeah, so I guess the term that's probably going to get coined in the next little while will be AI infrastructure, and that will be the whole ecosystem around building large scale AI data centers, and that will include not only data centers themselves, but also the equipment that goes inside them, as well as the power, the transmission, you know, that will support those facilities. And obviously, you know, the power side is large; you're going to be served by companies like Bepp, you know, who have many relationships with the hyperscale is already. But in addition to, you know, building a power facility, you also have to connect it and build the transformers and connect it to the grid.
Sam Pollock: And so a lot of our businesses are tied to that type of activity.
Sam Pollock: In addition to that, I think it's recognized that renewables probably can't be built quick enough to surface all the power needs that will be available for these, you know, large, you know, gigawatt size data centers that are being talked about. And so natural gas, in our view, as well as possibly nuclear, but in the short term, it will be natural gas, you know, will need to be utilized to provide the power. And so that's creating, you know, opportunities for us to invest across our natural gas complex to facilitate the movement of gas and storage of gas, you know, to, you know, to serve that whole ecosystem.
Cherilyn Radbourne: In addition to that, I think it's recognized that [inaudible]
Sam Pollock: So it's probably a little bit more complicated to get into it for each type of situation, but I would just say that all our natural gas complexes are in this discussion with a number of hyperscores.
Sam Pollock: Okay, that's helpful. And then on the opportunities that are progressing based on the Intel Blueprint, can you talk about how much capital you have the appetite and capacity to deploy to those opportunities and just what some of the guardrails are in negotiating that type of deal? Sure, so as far as amount of capital, I'd say, you know, given the interest we have from our global P-base to participate in those types of deals, I think it's unlimited. I think we could source, you know, ten to billions of dollars for similar type transactions, you know, whether it's for chip facilities or, you know, to provide the capital to go inside, as I mentioned, a lot of these future AI data centers.
Cherilyn Radbourne: I've got a couple. And then on the opportunities that are progressing based on the Intel blueprint, can you talk about how much capital you have the appetite and capacity to deploy to those opportunities and just what some of the guardrails are in negotiating that type of deal?
David Krant: Sure. So as far as the amount of capital, I'd say, given the interest we have from our global LP base to participate in those types of deals, I think it's unlimited. I think we could
Speaker Change: We have from.
Speaker Change: Our global LP base to participate in those types of deals I think it's.
Speaker Change: Unlimited.
Speaker Change: We could.
Speaker Change: Source tens of billions of dollars for.
Speaker Change: Similar type transactions, whether it's.
Speaker Change: Four.
Speaker Change: Chip facilities or.
Speaker Change: To provide the capital to go inside as I mentioned a lot of these.
Speaker Change: Future AI data centers.
Sam Pollock: As far as I think, I think, structure wise or what some of the limiting factors, you know, probably the most important one will be the counter party that we need to have stand behind a lot of the commercial elements of the transaction. So Intel was obviously a very strong credit for that particular situation. You know, I think any of the hyperscalers or some of the other large chip manufacturers, you know, would be great counter parties as well.
Speaker Change: As far as I think.
Speaker Change: Structure wise or what some of the limiting factors.
Speaker Change: Probably the most important one will be the counter party that we need to have stand behind a lot of the commercial elements of the transaction. So Intel was.
Speaker Change: Obviously, a very strong credit for that particular situation.
Speaker Change: I think any of the hyperscale or <unk> or some of the other large chip manufacturers would be great counterparties as well in some cases it may be governments.
Sam Pollock: In some cases, it may be governments as governments are now stepping into this area. So I think the opportunity set is huge, and we expect to be a leader in this area.
Speaker Change: As governments are now stepping into this area. So I think.
Cherilyn Radbourne: And if I could check on one quick follow-on, are all of those technologies in the technology space, or is there anything that will be analogous outside of tech? So that's a very good question.
Cherilyn Radbourne: And if I could tack on one quick follow-on question, are all of those technologies in the technology space, or is there anything that would be analogous outside of that?
Sam Pollock: I think the structure that we have come up with, elements of it are being used in areas that relate to hydrogen and other decarbonization type of facilities that are large. Some of those will be done by our sister company, but some also touch us and to the extent that it relates to industrial gases. So I would say the type of approach that we use for Intel does have many opportunities outside of just AI technology.
David Krant: The structure that we have come up with, elements of it are being used in. And I just think there are so many opportunities outside of just the AI technology, batteries being another area where I guess we've had lots of conversations.
Sam Pollock: You know, batteries being another area where I guess we've got lots of conversations.
Cherilyn Radbourne: That's all for me. Thank you. Okay. Thank you.
Cherilyn Radbourne: That's all for me. Thank you.
Speaker Change: Thank you.
Robert Kwan: Our next question will come from the line of Robert Kwan with RBC Capital Markets. Thank you. Good morning.
Speaker Change: Our next question will come from the line of Robert Kwan with RBC capital markets.
Robert Catellier: Thank you. Good morning. If I can just follow on, start with the. The comments around similar deals like the Intel deal and what you're seeing out of your private investors and that demand, can you just talk about, you know, having gone through, you know, the Intel and getting the feedback from from kind of the publicly, Just the thoughts on whether you think that the de-risking you've done on something like that is being appreciated versus the relatively low return out of that deal, and then especially just the multi-year, just the lag between capital out the door before it shows up in cash flow, and just how you would expect BIP to participate in any of these types of deals going forward.
Robert Kwan: If I can just as follow on start with the comments around similar deals like the Intel deal and what you're seeing out of your, your private investors and that demand, can you just talk about, you know, having gone through, you know, the Intel and getting a feedback from, from kind of the publicly and the investors and the public funds. Just the thoughts on whether you think that the de-risking you've done on something like that is being appreciated versus the relatively low return out of that deal. And then especially just the multi years, just the lag between capital out the door before it shows up in cash flow.
Robert Kwan: Thank you good morning, if I can just kind of a follow on to start with the.
Speaker Change: The comments around <unk>.
Speaker Change: Similar deals like the Intel deal and what Youre seeing out of your your private investors in that demand can you just talk about you know having gone through.
Speaker Change: The Intel and getting feedback from from kind of the publicly.
Speaker Change: And the investors in the public funds just the thoughts on whether you think that the derisking you've done on something like that is being appreciated versus the relatively low return out of that deal and then, especially just some multiyear or it's just a lag between capital out the door before it shows up in cash flow and just how you would expect.
Sam Pollock: And just how you would expect that to participate in any of these types of deals going forward. Thank you, Robert. So, look, I think. That could be a long conversation because you touched on a lot of elements there. So I'll try to keep it somewhat brief. But, obviously, there is a different level of patience, for lack of a better expression, between private investors and public investors who are maybe more a bit quarter to quarter. And so it's easier for us to do those types of transactions, those long lead development type deals in private funds. And, obviously, that's a little bit the rationale behind the private equity industry.
Speaker Change: To participate in any of these types of deals going forward.
David Krant: Hey, Robert. That could be a long conversation because you touched on a lot of elements there, so I'll try to keep it somewhat brief. But obviously, there is a different level of patience, for lack of a better expression, between private investors and public investors, who are maybe more a bit quarter to quarter. It's easier for us to do those types of transactions, those long-lead development-type deals in private funds, and obviously that's the rationale behind the private equity industry.
Robert Kwan: Hey, Robert.
Robert Kwan: So look I think.
Robert Kwan:
Robert Kwan: That could be a long conversation because you touched on a lot of elements there.
Robert Kwan: I'll try to keep it somewhat brief but obviously there is a oh.
Speaker Change: A different level of patience for lack of a better expression between private investors.
David Krant: However, you know, I think the benefit of Brookfield Infrastructure is the fact that we are a large, diversified business, and so, you know, we have many businesses at all stages of maturity, and so we have lots of businesses that are generating a significant amount of cash flow. And then we have these platform businesses that we talked about in the past that generate, you know, high, you know, high IRRs over the long run but maybe a little less cash flow in the short run.
Sam Pollock: However, I think the benefit of Brookfield Infrastructure is the fact that we are a large, diversified business. And so we have many businesses at all stages of maturity. And so we have lots of businesses that are generating significant amounts of cash flow. And then we have these platform businesses that we talked about in the past. That generate high IRRs over the long run, but maybe a little less cash flow in the short run. And so our investors for BIP, for instance, get the benefit of that whole suite of assets. And I think that's very attractive.
David Krant: And so our investors in BIPP, for instance, get the benefit of that whole, you know, suite of assets. And I think that's very attractive. I appreciate, you know, it would be great if everything we could buy would be generating cash flow from day one, but then again, I think our returns would be lower. I think to get the higher returns that people want, we need to have some of these businesses. I think, hopefully, having the long history that we do, our shareholders are generally patient and like the dividend growth that we have.
Robert Catellier: [inaudible]
Sam Pollock: I appreciate it would be great if everything we could buy would be generating cash flow day one. But then again, I think our returns would be lower. I think to get the higher returns that people want, we need to have some of these businesses that have a bit of a growth wedge to them. I think in the Intel transaction, in the end, we're going to find that's going to be a very high returning opportunity. The situation today, though, is we still have a couple of years to wait before we truly see the benefits of that.
Sam Pollock: But I think, hopefully, having the long history that we do, our shareholders are generally patient. And like the dividend growth that we have and, you know, have the same sort of patience that many of our private fund investors do. So I rise at the long-winded answer. I apologize for it, but it was a little bit tough to tackle all things you mentioned.
Robert Kwan: Yeah, yeah. I appreciate that the colors and multifaceted question.
David Krant: I appreciate the colors and the multifaceted question. Just if I can turn to your comment in the letter about the M&A market heating up, and there are both sides of it, so I'll try to touch on both, but just some thoughts on how the up to $2.5 billion of asset sale proceeds you might intend to use that. Would you expect that to fully back into acquisitions? Would you look to maybe create some dry powder by paying down some of the holdco lines? Or even on the other side, would you expect acquisition activity to exceed $2.5 billion?
Robert Kwan: Just if I can turn to your comment and the letters around the M&A market heating up, then there's both sides of it. So I'll try to touch on both. But just some thoughts on how the up to two and a half billion dollars of asset sale proceeds. You might intend to use that. Would you expect that fully back into acquisitions? Would you look to maybe create some drive powder by paying down some of the whole co lines? Or even on the other side, would you expect acquisition activity to exceed the two-and-a-half billion dollar figure? Again, so it's a little difficult to look into the crystal ball as to, you know, exactly what the proceeds could be.
David Krant: Again, so... It's a little difficult to look into the crystal ball as to exactly what the proceeds could be. I think today we feel confident about two and a half, but it could be more. In relation to some of the HOCO facilities, obviously, to the extent that they're related to those asset sales, and most of them are, they would just be paid off and go with the. The intention, as always, is to redeploy that into higher-earning investments.
Sam Pollock: I think today we feel confident about two and a half, but it could be more. You know, in relation to some of the whole co facilities, obviously to the extent that they're related to those asset sales, and most of them are, they would just be paid off when they go with the asset. You know, we don't have too many other whole facilities in the structure, I'd say. And, you know, the intention, as always, is to redeploy that into higher earning investments. So I think to continue the cycle of, you know, buying high quality assets with returns in the, you know, plus or minus 15% range, you know, we've done a little better in the last couple years, but maybe that trend back down a little bit, you know, as rates come down, but in that range historically.
David Krant: So I think to continue the cycle of buying high-quality assets with returns in the plus or minus 15% range, we've done a little better in the last couple of years, but maybe that trend will go back down a little bit as rates come down, but in that range historically, and then add value, invest in them, fix them up, and then sell them at returns probably closer to $10, $11. All right, everybody get finished.
Speaker Change: Buying high quality assets with returns in the plus or minus 15% range, we've done a little better in the last couple of years.
Robert Kwan: But maybe that trend back down a little bit.
Robert Kwan: Rates.
Robert Kwan: Come down but in that range historically and then.
Sam Pollock: And then, you know, add value, invest in them, you know, fix them up and then sell them, you know, at returns, probably closer to 10, 11%. So we'll continue to do that.
Robert Kwan: Add value invest in them fix them up and then sell them at returns probably closer to 10 or 11%.
Robert Kwan: So.
Robert Kwan: We'll continue to do that.
David Krant: What geographies and infrastructure subclasses are you seeing as having the strongest valuations for the divestiture side, and where are you seeing the more attractive valuations on the acquisition side?
Sam Pollock: And if I just finish, like what geography is in for subclasses, are you seeing is having the strongest valuations, so for the investors side and then just where you seeing the more attractive valuations on the acquisition side. So, this will sound a bit like a broken record. I think the, on the opportunity side, you know, we've seen them everywhere. We have a pretty balanced pipeline across Asia past. Asia pack is where I think we had the most advanced deals earlier in the year and probably some of those got pushed a little bit, but we think they're, they are still coming and will, and gives us a lot of confidence about some of the activity we have for later in the year.
Speaker Change: And if I can just finish like what geographies and for sub classes are you seeing as having the strongest evaluations for the divestiture side, and then just where you're seeing the more attractive valuations on the acquisition side.
Robert Kwan: So.
David Krant: This will sound a bit like a broken record, but I think on the opportunity side, you know, we see them everywhere. We have a pretty balanced. But the pipelines in North America and Europe have definitely filled up as well.
Speaker Change: This will sound a bit like a broken record I think the on the opportunity side, we see them everywhere, we have a pretty balanced.
Robert Kwan: Yes.
Robert Kwan: Pipeline across Asia Pac Asia Pac was where I think we had the most advanced deals earlier in the year and probably some of those got pushed a little bit, but we think there.
Robert Kwan: They are still coming in.
Robert Kwan: <unk> gives us a lot of confidence about some of the activity we have for later in the year.
Sam Pollock: But the pipelines in North America and Europe have definitely filled up as well. So I think we're seeing good opportunities there. We're probably maybe less active in South America, but you know, that's a market that I think that we're seeing, particularly in Brazil, some good improvements in sentiment. And so I think there could be more activity there as well. And on the sort of self side, look, the deepest market will always be the US market; that goes without saying. And, and then after that, probably Europe.
Robert Kwan: But the pipelines in North America, and Europe has definitely.
David Krant: So I think we're seeing good opportunities there. We're probably maybe less active in South America, but, you know, that's a market that I think that we should be targeting. And on the sort of stealth side... The deepest market will always be the U.S. market, that goes without saying, and then we have a group that is going to be working on the next phase of this project. So we're going to start with the first project, which is the, And then after that, probably Europe, so I don't think, unfortunately, I don't have any real shockers for you there. It's the same as usual.
Robert Kwan: Filled up as well so I think we're seeing good opportunities there were probably.
Robert Kwan: May be less active in South America.
Robert Kwan: But that's a market that I think that we're seeing.
Robert Kwan: Particularly in Brazil, some good.
Robert Kwan: Improvements in sentiment and so I think there could be more activity there as well.
Robert Kwan: And on the sell side.
Robert Kwan:
Robert Kwan: Look.
Robert Kwan: The deepest market will always be the U S market that goes without saying.
Robert Kwan: And.
Robert Kwan: And then after that probably Europe.
Robert Kwan: So I don't, unfortunately, I don't have any real shockers for you there. It's the same as usual. Okay, appreciate it. Thank you very much. Thank you.
Robert Kwan: Sure.
Robert Kwan: Unfortunately don't have any real.
Unknown Executive: As a reminder, if you'd like to ask a question at this time, please press star 1-1 on your touchdown telephone.
Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone. Our next question will come from the line of Devin Dodge with BMO Capital Markets. Thank you.
Devon Dodge: Our next question will come from the line of Devon Dodge with BMO Capital Markets. Thank you. Good morning.
Devin Dodge: Thank you. Good morning.
Devin Dodge: There seems to be a bit more M&A activity lately in the midstream sector. You're a well-known contrarian investor. Just wondering if you're – or we should expect you to be leading into that increased demand for these types of assets. You know, whether we could see one or more of your mature investments sold in the near term, and maybe, if the answer is yes, just what types of assets within this dream are getting the most potential or the most interest from potential buyers?
Sam Pollock: There seems to be a bit more MNA activity lately in the mystery sector. You're a well-known contrarian investor. Just wondering if you're, or we should expect you to be leading into that increased demand, pretty types of assets and, you know, whether we can see one or more of your mature investments sold in the near term. And maybe just, and if the answer is yes, just what types of assets within the streamer are getting the most potential or most interest from potential buyers? So I would concur. I think the midstream sector is a very interesting place.
David Krant: So, I would concur. I think the midstream sector is a very interesting place. A lot of buyers have returned there over the last couple of years, and it's been, from an operational perspective, one of our best segments, for sure, for the last while, and we foresee that to continue for definitely the medium term, short and medium term. We see lots of opportunities, I'd say, you know, today we have businesses. And so a lot of the M&A-slash-deployment is being done through those platforms.
Sam Pollock: A lot of fires have returned there over the last couple of years. And it's been, from an operational perspective, one of our best segments for sure for the last while. And we first see that to continue for definitely the medium term, short and medium term. We see lots of opportunities. And today we've got businesses across a number of geographies. And so a lot of the M&A slash deployment is being done through those platforms. And so we are looking for new investments as well, but I would say much of it is being done at that subsidiary level.
Robert Kwan: And.
Robert Kwan: It's been from an operational perspective.
Robert Kwan: Well.
Robert Kwan: One of our best segment for sure for the last while and we.
Robert Kwan: Foresee that to continue for the.
Robert Kwan: Definitely the medium term.
Robert Kwan: Short and medium term.
Robert Kwan:
Robert Kwan: We see lots of.
Speaker Change: Opportunities I'd say today, we've got businesses.
Robert Kwan: Across a number of geographies.
Robert Kwan: And so.
Robert Kwan: A lot of the let's call it M&A slash.
Robert Kwan: Deployment is being done through those platforms and so we.
David Krant: And so we are looking for new investments as well, but I would say much of it is being done at that subsidiary level, and the deployment is significantly high. As far as capital recycling, if we look across our businesses, you know, the one that It's doing exceptionally well. I think it's well recognized today as being critical, particularly in a number of markets, for balancing. Lowe is particularly related to LNG. If I think of one of our best-positioned assets today, it probably has to be that asset.
Robert Kwan: We're looking for.
Robert Kwan: New investments as well, but I would say much of it is being done.
Robert Kwan: At that.
Sam Pollock: And the deployment is significantly high. And I think we'll take advantage of all those opportunities.
Robert Kwan: Subsidiary level.
Robert Kwan: The deployment is significantly high.
Robert Kwan: And.
Robert Kwan: I think we will take advantage of all those and those opportunities.
Sam Pollock: As far as capital recycling, we look across our businesses; the one that I think we've talked about in the past that is probably the most mature. We've done a lot to it, and I think is incredibly well positioned as our natural gas storage business. That may be one that we look to bring in partners or sell down pieces. It's doing exceptionally well. I think it's well recognized today as being critical, particularly in a number of markets for balancing loads, particularly related to LNG. And, you know, if I think of one of our best positioned assets today, it probably has to be that asset.
Speaker Change: As far as capital recycling.
Speaker Change: Look across our businesses.
Speaker Change: The one that.
Speaker Change: I think we've talked about in the past that.
Speaker Change: It is probably the most mature we've done a lot to it and I think as <unk>.
Speaker Change: Credibly well positioned as our natural gas storage business that may be one that we.
Speaker Change: We look to bring in partners or.
Speaker Change: Or sell down pieces of it.
Speaker Change: It's doing exceptionally well.
Speaker Change: I think it's well recognized.
Speaker Change: Today as being critical.
Speaker Change: A number of markets for balancing.
David Krant: Loads, particularly related to LNG.
Speaker Change: And.
Speaker Change: If I think of one of <unk>.
Speaker Change: Our best positioned assets today, it probably has to be that asset.
Sam Pollock: Okay. Okay, make sense. Thanks for that.
Devin Dodge: Okay, okay. That makes sense. Thanks for that. And then data centers, there was some discussion in the letter about them. Just wondering if you could provide a bit of an update on the development pipeline and when we could start to see that self-funding strategy start to ramp up.
Speaker Change: Okay, Alright makes sense thanks for that.
Unknown Executive: And then data centers. There was a discussion in the letter about it.
Cherilyn Radbourne: And then data centers.
Speaker Change: There was some discussion in the letter about it I'm just wondering if you could provide a bit of an update on the development pipeline and when we could start to see that self funding strategy start to ramp up.
Sam Pollock: Just wondering if you could write a bit of an update on the development pipeline. And when could we start to see that self funding strategy start to ramp up. Okay. On the development side, I think we've gotten a lot of information earlier on the call, just on new areas we've gone into to add to our land bank. And today we're just building out the existing facilities that are contracted. And for those relatively few pieces of land that where we have power, we're very close to having those under contract as well. And, you know, the existing.
David Krant: Okay, on the development side, I think we've gotten a lot of information earlier on in the call, just on today, you know, we're just, you know, building out the existing facilities that are contracted, and for those relatively few pieces of land that where we have power, you know, we're very close to having those under contract as well, and, you know, they exist in. Whether it's South America, you know, Brazil, Chile, the U.S., you know, Phoenix, Chicago, you know; we've got obviously Europe, Germany, France, and Spain, as well as Greece; all of them are active at the moment.
Speaker Change: Okay.
Speaker Change: On the.
Speaker Change: Development side, I think we are getting a lot of.
Speaker Change:
Sam Pollock: and, you know, whether it's South America, you know, in Brazil and Chile, in the US, you know, in Phoenix and Chicago, you know, we've got obviously Europe, Germany, France and Spain as well as Greece. All them are active at the moment, and then, you know, we've got activities going on in Chennai and Mumbai in India, and then Korea and New Zealand and Australia. So, you know, literally, you know, I probably missed a few places, so we've got a lot of things going on in all those areas. Every one of those places has construction activity underway.
David Krant: And then, you know, we've got activities going on in Chennai and Mumbai, in India, and then Korea, and New Zealand, and Australia. So literally, and I probably missed a few places, so we've got a lot of things going on in all those areas. Every one of those places has construction activity underway. You know, as far as the Kappa Recycling.
Sam Pollock: As far as the capital recycling, you know, we are well advanced on a number of situations. I think, you know, the goal here is to, you know, not only do one-off, so we will do some one-off transactions, but in addition to that, to have something that's probably more programmatic, where we have a series of investors who will look to, you know, have, you know, repeatedly buy completed properties. And so, those initiatives are underway; we're quite encouraged. Obviously, we have the benefit of being able to take advantage of our several thousand number of clients across the world, and data centers are attracted to many of them.
David Krant: We are well advanced on a number of situations. A number of clients across the world and data centers are attracted to many of them today. A lot of them don't have them in their portfolio and are looking to get exposure. So I'd say stay tuned. Hopefully, next quarter we'll have some more updates, and if not next quarter, definitely the quarter after that.
David Krant: The goal here is to.
David Krant:
Speaker Change: Not only do one offs, which we will do some one off transactions, but in addition to that to have something thats, probably more programmatic, where we have a series of investors who will look to.
David Krant: We have repeatedly by <unk>.
Speaker Change: Completed properties.
David Krant: And so those initiatives are underway.
Speaker Change: Quite encouraged obviously, we had the benefit of being able to take advantage of our.
Speaker Change: Several thousand.
Speaker Change: Yes.
David Krant: Number of clients across the world and.
David Krant: Data centers are attractive to many of them today, a lot of them don't have them in their portfolio and they're looking to get exposure.
Sam Pollock: Today, a lot of them don't have them in their portfolio, and they're looking to get exposure. So, I'd say stay tuned. Hopefully, next quarter, we'll have some more updates. And if not next quarter, definitely the quarter after that. Okay, good color. I appreciate it.
Speaker Change: I would say.
Speaker Change: Stay tuned hopefully next quarter, we'll have some more updates.
David Krant: And if not next quarter definitely in the quarter after that.
Devin Dodge: Okay, good color. I appreciate it. I'll turn it over.
Unknown Executive: I'll turn it over.
Speaker Change: Okay. Good color I appreciate it I'll turn it over.
Speaker Change: Yeah.
Sam Pollock: That concludes today's question and answer session.
Operator: That concludes today's question and answer session. I'd like to turn the call back to Sam Pollock for closing remarks.
Speaker Change: That concludes today's question and answer session I'd like to turn the call back to Sam Pollock for closing remarks.
Unknown Executive: I'd like to turn the call back to Sam Pollock for closing remarks. All right, thank you. Thank you, Liz. I appreciate your help. And thank you to everyone for joining the call this morning. We hope everyone’s summer has been going well, and we look forward to providing an even more detailed update that our upcoming annual investor-day event, which will be held in Toronto on September 24th. So thank you again, and take care.
Samuel J. B. Pollock: All right. Thank you. Thank you, Liz. We appreciate your help. And thank you to everyone for joining the call this morning. We hope everyone's summer has been going well, and we look forward to providing an even more detailed update at our upcoming Annual Investor Day event, which will be held in Toronto on September 24th. So, thank you again, and take care.
Operator: Yeah.
Sam Pollock: Alright. Thank you. Thank you Liz I would appreciate your help and thank you to everyone for joining the call. This morning.
Samuel J. B. Pollock: We hope everyone summer has been going well and we look forward to providing.
Samuel J. B. Pollock: I need a more detailed update at our upcoming annual Investor day event.
Speaker Change: It will be held in Toronto on September 24th.
Samuel J. B. Pollock: So thank you again and take.
Speaker Change: Take care.
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Yeah.
Operator: Yeah.